Hillman Capital Management recently disclosed its 13F portfolio updates for the fourth quarter of 2022, which ended on Dec. 31.
Mark Hillman (Trades, Portfolio) is the president, CEO and chief investment officer of the firm, which he founded in 1998. The firm’s strategy is to invest in companies with distinct competitive advantages, especially ones that have fallen temporarily out of favor with investors due to short-term, non-recurring issues. Hillman considers factors such as cash flow, dividends, sales, earnings, book value and projected growth rates when valuing a business.
According to the firm’s latest 13F filing, its top buys of the quarter were The Walt Disney Co. (DIS, Financial), Warner Bros. Discovery Inc. (WBD, Financial), UnitedHealth Group Inc. (UNH, Financial) and The Home Depot Inc. (HD, Financial).
Investors should be aware 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Walt Disney
Hillman Capital took a new holding worth 65,744 shares in Walt Disney (DIS, Financial) after selling out of its previous investment in the second quarter of 2012, giving it a weight of 2.24% in the equity portfolio. Shares traded for an average price of $95.65 during the quarter.
Disney is an iconic mass media company and one of the largest producers of entertainment in the U.S. Based in Los Angeles, the company produces movies and shows, owns and operates theme parks and provides streaming services such as ESPN+, Hulu and Disney+.
Now that customers are once again flocking to theme parks and other forms of in-person entertainment, Disney is seeing these parts of its business recover rapidly due to pent-up demand. Moreover, the company expects the streaming service Disney+ to be profitable by fiscal 2024, which would be a key milestone. The GF Value chart rates the stock as significantly undervalued.
Warner Bros. Discovery
The firm upped its investment in Warner Bros. Discovery (WBD, Financial) by 29.56% for a total of 709,126 shares, adding 0.60% to the equity portfolio at the quarter’s average share price of $11.29.
Last April, Discovery and WarnerMedia officially closed their long-awaited merger deal to create one entertainment giant in order to drive value creation and take advantage of business synergies. The newly combined company aims to improve its competitive standing against other television streaming companies.
According to CEO David Zaslov, the company “offers the most differentiated and complete portfolio of content across film, television and streaming.” As a leader in informational television content, Discovery undeniably has a unique product to offer alongside WarnerMedia’s entertainment focus, which helps differentiate it from competitors. The merger came at a bad time for the streaming market, leading investors to sell off the stock as in plunged into unprofitable status as shown by the comparison of return on invested capital to weighted average cost of capital.
UnitedHealth Group
The firm bought 1,071 shares of UnitedHealth Group (UNH, Financial), giving the stock a weight of 0.22% in the equity portfolio. During the quarter, shares traded for an average price of $529.71.
UnitedHealth is the largest managed care company in the U.S. by revenue. It offers a variety of health care products and insurance services through its many subsidiaries. The company has a powerful tailwind due to the aging population in the U.S.
The company has come under pressure because of a court ruling that the government is allowed to recoup Medicare Advantage overpayments that resulted from health insurers artificially inflating prices. According to a 2017 Government Accountability Office report, the government made more than $16 billion in improper payments under Medicare Advantage just in fiscal 2016. It is unclear the exact effect this will have on UnitedHealth, but as of last year, the company comprised a quarter of the Medicare Advantage market, which is a drop in the bucket compared to the mammoth $285 billion in revenue that it earned for 2021.
Home Depot
Hillman Capital purchased a 1,350-share position in Home Depot (HD, Financial), giving it a weight of 0.17% in the equity portfolio at the quarter’s average share price of $304.63.
Home Depot is the largest home improvement retailer in the U.S., supplying a wide variety of tools, construction materials, pre-constructed home fixtures and related services. Based in Atlanta, the company has over 2,200 stores throughout the U.S., Canada and Mexico.
The company holds a duopoly with Lowe’s (LOW, Financial) over the U.S. home improvement market. Both companies experienced bumper years recently due to the hot housing market. Although there are fears that an economic recession could hurt Home Depot’s earnings, it is still going strong for now, as shown by the below chart of its trailing 12-month revenue and earnings per share:
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The firm also bought two exchange-traded funds in the fourth quarter, the S&P 500 ETF Trust (SPY, Financial) and the iShares Core S&P 500 ETF (IVV, Financial), sold out of Merck & Co. Inc. (MRK, Financial) and reduced or added to most of the other holdings.
As per the latest 13F filing, the firm’s U.S. common stock equity portfolio held shares in 53 stocks valued at a total of $255 million. The turnover was fairly low at 4%.
The top holding was Anheuser-Busch InBev SA/NV (BUD, Financial) with 3.63% of the equity portfolio, followed by Wells Fargo & Co. (WFC, Financial) with 3.68% and The Kraft Heinz Co. (KHC, Financial) with 3.57%.
In terms of sector weighting, the firm was most invested in health care, communication services and industrials.
